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Is the ETI applicable where the employee’s income is below the tax threshold?

19 May 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: An employee earns less than the income tax threshold amount and is therefore not subject to PAYE. How then can the employer earn the employment tax incentive when there is no PAYE to be paid? I thought that the ETI is deducted from the PAYE due?

A: Here’s the draft SARS guide to the ETI Act.

http://c.ymcdn.com/sites/sait.site-ym.com/resource/resmgr/2014_SARS/LAPD-LPrep-Draft-2014-10_-_D.pdf 

Note point 6 (especially 6.1) titled "Process for claiming the ETI”.

The relevant portions read:

"The practical implementation of the ETI is done by means of a reduction in the employees’ tax that an employer must pay over to SARS every month. The employer’s total employees’ tax liability for the month is simply reduced by the total ETI that the employer qualifies for during that month.”

 "The ETI does not affect the remuneration received by the employee, or the employees’ tax deducted from that employee. The employees’ tax certificate (IRP5) that the qualifying employee is entitled to receive must disclose the total remuneration, as well as the total employees’ tax deducted or withheld, disregarding the ETI.”

This is in line with section 2(2) of the ETI Act:

"If an employer is eligible to receive the employment tax incentive in respect of a qualifying employee in respect of a month, that employer may reduce the employees’ tax payable by that employer in an amount determined in terms of section 7 or receive payment of an amount contemplated in section 10(2), unless section 8 applies.”

ETI is deducted from total PAYE that is payable by the employer. It is not deducted from a particular employee’s PAYE.

To the extent that the total ETI claimable exceeds the total PAYE payable, a refund is payable by SARS to the employer per section 10 of the ETI Act.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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